Barington Capital Group LP made a lot of noise in 2005 by calling for changes at compounder A. Schulman Inc., but at Schulman's recent annual meeting, Barington boss James Mitarotonda didn't have a lot to say.
After the meeting - held Dec. 8 in Akron - Mitarotonda said his New York-based firm hadn't decided yet if it would participate in Schulman's pending offer to buy back at least $175 million in stock. Fairlawn, Ohio-based Schulman made the offer in late October, at the same time it added Mitarotonda to its board of directors.
Barington had acquired about 9 percent of Schulman stock during 2005, with Mitarotonda and other executives actively voicing displeasure with current Schulman strategies. At one point in early October, Mitarotonda said his firm ``lacks confidence in the ability of Schulman's board to maximize value for the company's shareholders.''
One of Barington's specific concerns - about Chief Financial Officer Robert Stefanko also serving as chairman of the board - was rendered moot Jan. 5 when Stefanko announced his retirement after a 34-year career with the firm. In an earlier statement, Barington had said there was a potential conflict in that Stefanko still was reporting to Schulman President and Chief Executive Officer Terry Haines while serving the board as chairman.
Stefanko will be replaced as CFO by Paul DeSantis, who had been vice president and corporate treasurer for Scotts Miracle-Gro Co., a maker of lawn and garden products in Marysville, Ohio. Haines will assume Stefanko's role as chairman.
On Dec. 8, Mitarotonda also described Schulman's venture into commercial sheet production as ``very interesting and promising,'' but he declined to comment on other issues facing the firm.
But another shareholder - William Heller - was not nearly as shy, taking the opportunity to criticize Haines and the firm's management team for disappointing results in its North American business. Schulman derives most of its sales and almost all of its profit from its European operations. The company has cut North American capacity by 30 percent in recent years, mainly by closing compounding plants in Akron, Ohio, and Orange, Texas.
Heller added that Schulman's dividend and stock price also has underperformed in recent years. After the meeting, Heller repeated his critique, but declined to say how large a portion of Schulman stock he owns. During the meeting, Heller said he and members of his family have held Schulman shares for 15 years.
Haines responded by saying that he questioned ``a lot of [Heller's logic]'' and that Schulman stock ``has been a great buy for shareholders in the last five years.'' Since 2000, Haines said, Schulman stock has outperformed Standard & Poor's 500 and has been competitive with the S&P specialty chemicals index.
``I'm glad the board kept me here to see the turnaround,'' said Haines, a 40-year Schulman veteran who has been CEO since 1991.
The buyback offer will include 8.75 million shares of Schulman stock at a price of no less than $20 per share. Schulman's per-share stock price spent most of 2005 between $16 and $19, but was around $22 in early trading Jan. 6.
The buyback was to have been completed Dec. 20 or no later than April 30. Schulman officials could not be reached to confirm whether the earlier deadline had been met.
Schulman board member Ernest Novak Jr,, a retired managing partner in the Cleveland office of accounting firm Ernst & Young, said that adding Mitarotonda to the board and working with Barington ``can be a win-win situation'' for Schulman.
``There's no reason why it shouldn't be,'' Novak said after the meeting, ``Corporate boards today need a wide range of disciplines of knowledge.''
Earlier in the meeting, Haines and other Schulman execs had credited the firm with posting best-ever sales of $1.4 billion in its 2005 fiscal year, which ended Aug. 31. Sales were up almost 16 percent from the previous year, while profit was up 15 percent to $32 million.
In fiscal 2005, Schulman improved its gross margin on raw materials from 19.5 percent to 24 percent. The firm also has reduced its days of product inventory by 46 percent since fiscal 2003, with that number now under 40. Moving into 2006, Haines said Schulman plans to ship 60 percent of its products directly from its plants to customers, avoiding costly warehousing.
Barry Rhodes, Schulman's vice president of sales and marketing, said the firm will begin production on a second commercial line making Invision-brand sheet by mid-2006. Schulman also will begin construction of a separate Invision plant in northwest Ohio around that same time, Rhodes said.
Schulman opened plants in Poland and China in 2005. In Europe, the firm recently acquired a pilot plant to make biaxially oriented polypropylene film in Bornem, Belgium. The small-scale film plant will help Schulman develop compounds and color concentrates for that market, said Jack Taylor, general manager of Schulman's European and Asian operations.
The European unit also is developing materials for a PP-based artificial grass that can be used along with natural grass on soccer fields, Taylor added.
Schulman derives about 70 percent of its sales from compounding and color concentrate production of products primarily based on PE, PP and PVC. The remainder of the firm's sales come from resin distribution. Schulman ranks among North America's largest firms in both compounding and distribution.